I write about how technology shapes society, and vice versa. In addition to blogging for Forbes, I cover tech policy for Ars Technica. I'm an adjunct scholar at the Cato Institute and have a master's degree in computer science from Princeton. I live in Philadelphia with my wife and our two cats. There's more information about me on my website, including a comprehensive disclosure statement. Please follow me on Twitter. You can email me at contact@timothyblee.com. (I don't really like Google+ but I need to put my profile here to show up in Google search results)

Marketing is expensive. Even if we allow free access to what otherwise would be copyrighted works, that doesn’t necessarily create maximum social value because it doesn’t carry with it any marketing, information sharing about the material… To say that once something has been created that ex post it can be distributed freely and therefore the marginal cost is zero, that doesn’t actually encompass everything because doing that would also destroy the incentive of the sole owner to engage in other activities, expensive activities, risky activities around the commercialization of that property.

To see what’s wrong with this line of argument, it’s helpful to remember Ed Felten’s brilliant pizzaright principle: if an argument for copyright protection could apply equally to giving someone the exclusive right to sell pizzas, there’s something wrong with your argument. Manne’s argument clearly fails the pizzaright test:

Marketing of pizzas is expensive. Even if we allow free entry into the pizza market, that doesn’t necessarily create maximum social value because the pizzas might not carry with them any marketing, information sharing about the material… To say that once a pizza has been baked it can be distributed at low cost, that doesn’t actually encompass everything because doing that would also destroy the incentive of the sole owner to engage in other activities, expensive activities, risky activities around marketing and distributing pizzas.

Economic theory says that in a competitive market, the cost of a pizza, like the cost of a copyrighted work, will fall to its marginal cost. In principle, these razor-thin profit margins should, for example, mean that firms have no money left over to spend on advertising their businesses.

Of course, in the real world, a competitive market in pizzas doesn’t mean pizza prices instantly fall to marginal cost. Despite the lack of pizzarights, pizza margins in the real world allow many pizza manufacturers to earn healthy profits. And as a result, pizza firms spend plenty of money on advertising.

Exactly the same point applies to copyrighted works. Shakespeare has been in the public domain for centuries. Yet I can still go to my local bookstore and find numerous competing editions of Shakespeare’s classics. Some of these books are priced significantly above marginal cost. If there were a company that held the copyright to Shakespeare’s works, it might engage in some “commercialization” activities that don’t occur right now. And such a firm would obviously make a ton of money. But there’s no reason to think these profits would reflect value added by the firm’s marketing activities, rather than mere monopoly rents taken out of the pockets of consumers.

There’s something deeply ironic about a libertarian effectively arguing that central planning is more efficient than competitive markets because the central planner can internalize the returns from investments in marketing and distribution. This point is true in principle, but the effect is likely to be extremely small. We wouldn’t buy that argument for a minute if someone used it defend a legal monopoly in pizzas, automobiles, or tennis shoes. But some libertarians seem to find the same line of argument persuasive when applied to copyrighted works.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

The “pizzaright” analogy is inapt in one crucial way. No one markets “pizza” generically, which anyone can sell, they market their own pizza, which they sell exclusively. The “pizzaright” analogy would hold for a monopoly publishing law that gave copyrights to all works to one entity (as once existed in England) but not for a copyright law giving a monopoly over individual works to their respective, competing owners.

And lest you try to say that your own pizza is not yours to sell exclusively by pointing out that pizza recipes are non-copyrightable and not always protected by trade secrets, consider that much a what you are considering when buying a pizza is brand reputation and quality control; so, in fact, everyone really does still exclusively sell their own pizza, even if the recipes are identical.

Something similar can be said about editions of the Bible, or Shakespeare, of which there are many. The publishers of these books try to differentiate their products with commentary, and formatting, and binding.

Also, while completely tangential, this is sloppy:

Economic theory says that in a competitive market, the cost of a pizza … will fall to its marginal cost … [but] pizza margins in the real world allow many pizza manufacturers to earn healthy profits.

You appear to be confusing 1) marginal cost with marginal revenue, and 2) economic and accounting definitions of profit. Actual economic theory predicts precisely what happens.

It’s important to remember that the Pizzaright Principle is about arguments, not policy regimes. The point is that if argument X for stronger copyright works equally well as an argument for pizzarights, then argument X is defective. There are arguments for strong copyright protection that *don’t* work as arguments for pizzarights, and these may be perfectly valid.

My point is not that we shouldn’t offer copyright protections. It’s that Manne’s argument for copyright protection proves too much, because it suggests we should also create pizzarights, carrights, shoerights, etc.

I was just expanding on what I took Manne to mean when he said that the lack of copyright will “destroy the incentive of the sole owner” to market the work, pointing out that identical logical applies to pizzas. I understand that there are alternative economic models that produce more realistic predictions.

My point isn’t that we should offer copyright protections, it is that your pizzarights argument is a bad argument here, because Manne’s argument for copyright protection does not prove too much, because you need to make a false analogy to think that it implies we should also create pizzarights, etc.

This Pizzaright argument seems very problematic on a couple levels, Lee.

1) Since there’s no plausible argument for a monopoly on pizza sales, that implies that there is no plausible argument for any IP rights. You may take an intellectual consistent position that there should be no IP rights, but it’s hard to embrace the Pizzaright argument while acknowledging the legitimacy of IP rights. What IP rights argument do you think would justify an exclusive monopoly on pizzas?

2) A copyright is a right to a specific creative work, not a general concept. The food product, “pizza”, is not a specific creative work. The two just aren’t analogous. It might be plausibly analogous to patents, but that is a different issue. A copyright over, say, a movie I created is not a monopoly over a general idea. It is a monopoly over my own *specific* work. Nothing in my copyright prohibits others from making movies.

Your point (1) is easy to address: the principle argument for copyright is that the fixed cost of creating the first copyrighted work is high, while the costs of producing a perfect copy of the work is low. Therefore, without copyright, you’d get systematic under-production of copyrighted works. This *doesn’t* apply to pizzas. If I wanted to start making copies of Dominos Pizzas, I’d have to spend roughly the same amount they did on equipment, materials, etc in order to copy their pizzas.

In contrast, Manne is arguing that even after “something has been created,” it might still beneficial to give someone a monopoly in order to incentivize investments in marketing and distribution. But that argument applies equally well to pizzas, cars, shoes, or anything else.

On (2): you’ve put your finger on an important way that pizzarights are worse than copyrights. But remember that the Pizzaright Principle is about arguments, not about policy regimes. It says that if argument X for stronger copyright works as well as an argument for pizzarights, then argument X is defective. Just to re-iterate, Ed and I are both supporters of copyright law. The Pizzaright Principle isn’t an argument against copyright protection. Rather, it’s a handy way of identifying bogus arguments in favor of copyright protections. There may be (and I think they are, see above) other, valid, arguments that pass the pizzaright test.

I appreciate the thoughtful reply. Fwiw, I did not mean to imply that you opposed all IP rights. Just that the pizzarights argument implied opposition to IP rights.

I’m unsure how your answer disagrees here. The high up-front, low marginal cost applies to both pizza and copyright, but why would a monopoly on a generalized product like pizzas produce better marketing or distribution as it pretty demonstrably does in copyright? Note: I’m not saying the marketing and distribution of copyrighted works is ALWAYS better. But copyright allows for pursuit of either path, so we get both YouTube and HBO.

I may very well be misunderstanding your argument here, but it seems to me that analogizing rights over a general idea to rights a specific creation is problematic.

And — skipping around in the argument here a bit — I also think there are two pieces of economic analysis to be done. One is “will copyright lead to the production of this work,” while a second is “will copyright maximize the economic and social value of this work.” Ex post facto copyright certainly wouldn’t incent the production of new creative works (except, perhaps, insofar as work might be made with the expectation of potential copyrights). But then, with the exception of copyright extensions, I don’t see that being a big issue. The second analysis is whether ex post facto copyrights would produce positive social and economic effects in terms of marketing and distribution. That seems much more likely to be true in the case of IP than pizza. After all, a copyright doesn’t prohibit others from making similar generalized content, whereas a pizzaright would prohibit others from making similar generalized pizza.

Again, the pizzaright argument does not imply opposition to IP rights. It’s a way of critiquing particular, fallacious arguments for copyright, and encouraging people to make non-fallacious arguments for copyright.

These cases seems pretty similar to me. If Pizza, Inc, had a pizzaright monopoly, I can think of a number of ways consumers could benefit from that. Consumers could count on a uniformly high quality of pizzas at every Pizza, Inc, store. Pizzas would come in the same standard flavors across the country, so consumers would always know what kinds of pizza are available. When a new flavor of pizza was invented, Pizza, Inc, could afford to do a nationwide publicity campaign to promote it. Pizza, Inc, would be more willing to invest in opening stores in places where pizza isn’t currently popular to build a future market for their products.

Now, I don’t think those advantages come anywhere close to offsetting the disadvantages–in higher cost and fewer choices–of a pizza monopoly. But I think precisely the argument applies to, for example, George Lucas’s Star Wars monopoly. I think society would be much better off if we had the founders’ copyright term and the copyright for Star Wars expired in 2005. Not only would consumers have saved a lot of money buying copies of Star Wars since then, but our culture would also be richer. After 2005 we’d have gotten an explosion of third-party Star Wars sequels, spin-offs, merchandising, and so forth.

What marketing benefits has Lucasfilm’s Star Wars monopoly given the public since 2005? Do you think these benefits have outweighed the costs of Lucas’s continued monopoly?

I would have a much stronger argument against this if you had used any example except Star Wars. I would strongly consider a broad limitation on George Lucas’ copyrights, on the grounds that he is clearly not very good at using them to make progress. See: Star Wars, Episodes 1, 2 and 3.